Horizon Bancorp (HBNC) came out with quarterly earnings of $0.32 per share, beating the Zacks Consensus Estimate of $0.30 per share. This compares to earnings of $0.43 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 6.67%. A quarter ago, it was expected that this bank holding company would post earnings of $0.29 per share when it actually produced earnings of $0.33, delivering a surprise of 13.79%.Over the last four quarters, ...

[Performance Highlights](index=1&type=section&id=First%20Quarter%202024%20Highlights) Horizon Bancorp returned to profitability in Q1 2024 with $14.0M net income, driven by net interest margin expansion, strong loan growth, and managed expenses Q1 2024 vs. Q4 2023 Key Metrics | Metric | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | Net Income | $14.0M | ($25.2M) | | Diluted EPS | $0.32 | ($0.58) | | Net Interest Margin | 2.50% | 2.43% | | Net Interest Income | $43.3M | $42.3M | - Total loans grew by **18.2% annualized** during the quarter to **$4.62 billion**, driven by strategic deployment of excess liquidity into residential mortgages (**+$94.7 million**) and consumer loans (**+$59.1 million**)[5](index=5&type=chunk) - Commercial loans demonstrated strong growth of **11.2% annualized**, which included **$22.8 million** in new equipment finance production[5](index=5&type=chunk) - Asset quality remained excellent, with net charge-offs at only **0.01%** of average loans and non-performing loans at **0.41%** of total loans[5](index=5&type=chunk) - The company maintained significant flexibility with **$271.1 million** in cash at period end, available for deployment into higher-yielding assets throughout 2024[5](index=5&type=chunk) [Financial Performance Analysis](index=3&type=section&id=Financial%20Performance%20Analysis) Q1 2024 saw a significant turnaround to profitability, driven by increased net interest income, reduced non-interest expenses, and robust loan growth [Income Statement Analysis](index=3&type=section&id=Income%20Statement%20Highlights) Q1 2024 net income of $14.0M recovered from Q4 2023's $25.2M loss, driven by non-recurrence of one-time events and expense reductions - The rebound from a **$25.2M net loss** in Q4 2023 to a **$14.0M net income** in Q1 2024 was largely due to the non-recurrence of a **$31.6M net loss** on the sale of securities and an **$8.6M tax effect** from the surrender of bank-owned life insurance in the prior quarter[2](index=2&type=chunk)[8](index=8&type=chunk) - Non-interest expense **decreased by $2.2 million** from the linked quarter, primarily due to lower salaries and employee benefits (**-$1.6 million**), loan expense (**-$626,000**), and other losses (**-$492,000**)[10](index=10&type=chunk) - The effective tax rate for Q1 2024 was **8.6%**, with income tax expense **$5.1 million lower** than the linked quarter, which had included tax associated with the surrender of bank-owned life insurance[11](index=11&type=chunk) [Net Interest Margin (NIM)](index=3&type=section&id=Net%20Interest%20Margin) Net Interest Margin (NIM) expanded for the second consecutive quarter, increasing by 7 basis points to 2.50% in Q1 2024 Net Interest Margin Expansion | Metric | Q1 2024 | Q4 2023 | Change (bps) | | :--- | :--- | :--- | :--- | | Net Interest Margin (NIM) | 2.50% | 2.43% | +7 bps | | Adjusted NIM | 2.50% | 2.42% | +8 bps | [Lending Activity](index=3&type=section&id=Lending%20Activity) Total loans grew robustly by $200.5 million, or 18.3% annualized, reaching $4.62 billion, driven by strategic liquidity deployment Loan Growth by Type (Q1 2024 vs Q4 2023) | Loan Type | Q1 2024 Balance ($M) | QTD $ Change ($M) | Annualized % Change | | :--- | :--- | :--- | :--- | | Commercial | 2,749.8 | +74.8 | 11.2% | | Residential mortgage | 782.1 | +100.9 | 59.6% | | Mortgage warehouse | 56.5 | +11.5 | 102.3% | | Consumer | 1,029.8 | +13.3 | 5.3% | | **Total loans** | **4,618.2** | **+200.5** | **18.3%** | [Deposit Activity](index=4&type=section&id=Deposit%20Activity) Total deposits decreased modestly by 1.5% (6.0% annualized) to $5.58 billion, primarily due to reductions in time and non-interest-bearing deposits Deposit Changes by Type (Q1 2024 vs Q4 2023) | Deposit Type | Q1 2024 Balance ($M) | QTD $ Change ($M) | | :--- | :--- | :--- | | Non-interest bearing | 1,093.1 | (22.9) | | Interest bearing | 3,350.7 | (18.5) | | Time deposits | 1,136.1 | (43.6) | | **Total deposits** | **5,579.9** | **(85.0)** | [Capital and Liquidity](index=4&type=section&id=Capital%20and%20Liquidity) The company maintained strong capital and liquidity, exceeding regulatory standards with a 10.90% CET1 ratio and substantial available liquidity - The capital resources of the Company and the Bank continued to **exceed regulatory capital ratios** for "well capitalized" banks at March 31, 2024[18](index=18&type=chunk)[21](index=21&type=chunk) - Tangible book value per common share (TBVPS) **increased by $0.05** during the first quarter to **$12.65**[19](index=19&type=chunk) - The Bank had significant available liquidity, including approximately **$1.56 billion** in unused credit lines and **$581.1 million** of unpledged investment securities[22](index=22&type=chunk) [Detailed Financial Statements](index=7&type=section&id=Financial%20Highlights) This section provides unaudited financial tables, including balance sheets, income statements, and credit quality data, for a comprehensive financial overview [Condensed Consolidated Balance Sheets](index=12&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $7.86 billion, driven by cash redeployment into loans, while liabilities decreased and equity slightly increased Key Balance Sheet Items | Item | March 31, 2024 ($M) | Dec 31, 2023 ($M) | | :--- | :--- | :--- | | Total Assets | 7,855.7 | 7,940.5 | | Cash and due from banks | 271.1 | 526.5 | | Loans, net | 4,567.8 | 4,367.6 | | Total Deposits | 5,579.9 | 5,664.9 | | Total Liabilities | 7,134.5 | 7,221.7 | | Total Stockholders' Equity | 721.3 | 718.8 | [Condensed Consolidated Statements of Income](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q1 2024 net income was $14.0M ($0.32 EPS), a significant improvement from Q4 2023's $25.2M loss, driven by higher net interest income Income Statement Summary (Q1 2024 vs Q4 2023) | Item | Q1 2024 ($M) | Q4 2023 ($M) | | :--- | :--- | :--- | | Net Interest Income | 43.3 | 42.3 | | Non-interest Income | 9.9 | (20.4) | | Non-interest Expense | 37.1 | 39.3 | | **Net Income (Loss)** | **14.0** | **(25.2)** | | **Diluted EPS** | **$0.32** | **($0.58)** | [Credit Quality Analysis](index=9&type=section&id=Credit%20Quality%20Analysis) Credit quality improved in Q1 2024, with non-performing loans decreasing to 0.41% and minimal net charge-offs at 0.01% - Total non-performing loans **decreased to $19.2 million** (**0.41%** of total loans) from **$20.3 million** (**0.46%** of total loans) in the linked quarter[31](index=31&type=chunk)[39](index=39&type=chunk) - Net charge-offs for the quarter were **minimal at $426,000**, representing just **0.01%** of average loans outstanding[36](index=36&type=chunk) Allowance for Credit Losses (ACL) | Metric | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total ACL | $50.4M | $50.0M | | ACL to Total Loans | 1.09% | 1.13% | [Non-GAAP Financial Measures and Reconciliations](index=14&type=section&id=Use%20of%20Non%E2%80%93GAAP%20Financial%20Measures) This section reconciles GAAP to non-GAAP measures, clarifying core performance by excluding non-recurring items, with Q1 2024 reported and adjusted figures identical - The company uses non-GAAP measures to provide investors with a clearer view of its business and financial results by excluding the impact of non-recurring items such as acquisition-related adjustments and one-time costs[49](index=49&type=chunk) Adjusted vs. Reported Metrics (Q4 2023) | Metric | Reported | Adjusted | | :--- | :--- | :--- | | Net Income (Loss) | ($25.2M) | $14.1M | | Diluted EPS | ($0.58) | $0.33 | | Efficiency Ratio | 180.35% | 72.36% | | ROAA | (1.27)% | 0.71% | - For Q1 2024, there were **no adjustments made**, so reported figures for net income (**$14.0M**), diluted EPS (**$0.32**), and other key metrics were the same as the adjusted figures[50](index=50&type=chunk)[53](index=53&type=chunk) [Other Information](index=6&type=section&id=Other%20Information) This section provides corporate disclosures, including forward-looking statements, earnings call details, and a profile of Horizon Bancorp's operations [Forward-Looking Statements](index=6&type=section&id=Forward%20Looking%20Statements) This section provides a safe harbor statement, cautioning that forward-looking statements are subject to risks like interest rate changes and economic conditions - The company claims protection under the safe harbor for forward-looking statements, which are **not guarantees of future performance** and are subject to risks and uncertainties[24](index=24&type=chunk) - Key risks that could cause actual results to differ include changes in interest rates, inflation, regulatory actions, cybersecurity threats, and geopolitical conflicts[25](index=25&type=chunk) [About Horizon Bancorp, Inc.](index=20&type=section&id=About%20Horizon%20Bancorp%2C%20Inc.) Horizon Bancorp, Inc. is a $7.9 billion-asset holding company for Horizon Bank, offering diverse banking services across Indiana and Michigan - Horizon Bancorp, Inc. (NASDAQ: HBNC) is a **$7.9 billion-asset** holding company for Horizon Bank, serving markets in Indiana and Michigan[73](index=73&type=chunk) - The bank's business mix includes retail banking, wealth management, treasury management, and equipment financing, with commercial lending representing **over 50%** of total loans[73](index=73&type=chunk) [Earnings Conference Call Information](index=19&type=section&id=Earnings%20Conference%20Call) Horizon will host an earnings conference call on April 25, 2024, at 7:30 a.m. CT, with replay available until May 3, 2024 - The earnings conference call is scheduled for **April 25, 2024**, at **7:30 a.m. CT**. Dial-in information is provided for all participants[71](index=71&type=chunk) - A replay of the conference call will be available through **May 3, 2024**, with the access code **4319315**[72](index=72&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 Commission file number 0000-10792 Horizon Bancorp, Inc. (Exact name of registrant as specified in its charter) | Indiana | | 35-1562417 | | --- | --- | --- | | (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | | 515 Franklin Street, Michigan C ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section details the company's unaudited financial statements, management's analysis, market risk, and internal controls [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of income, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, securities, loans, credit losses, and other financial instruments [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates **Condensed Consolidated Balance Sheet Highlights (Dollar Amounts in Thousands):** | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------------------ | :----------------- | :------------------ | | Total Assets | $7,959,434 | $7,872,518 | | Loans, net of allowance for credit losses | $4,309,303 | $4,107,534 | | Total Deposits | $5,700,097 | $5,857,774 | | Borrowings | $1,356,510 | $1,142,949 | | Total Stockholders' Equity | $693,369 | $677,375 | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section presents the company's revenues, expenses, and net income over specific periods, reflecting operational profitability **Condensed Consolidated Statements of Income Highlights (Dollar Amounts in Thousands, Except Per Share Data):** | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Interest Income | $80,125 | $61,496 | $228,791 | $168,846 | | Total Interest Expense | $38,035 | $9,635 | $95,304 | $18,110 | | Net Interest Income | $42,090 | $51,861 | $133,487 | $150,736 | | Net Income | $16,205 | $23,821 | $53,196 | $72,243 | | Basic Earnings Per Share | $0.37 | $0.55 | $1.22 | $1.66 | | Diluted Earnings Per Share | $0.37 | $0.55 | $1.21 | $1.65 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section details the company's comprehensive income, including net income and other comprehensive income (loss) components **Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (Dollar Amounts in Thousands):** | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Income | $16,205 | $23,821 | $53,196 | $72,243 | | Unrealized gain (loss) for the period on AFS securities | $(32,139) | $(39,856) | $(19,790) | $(169,013) | | Other Comprehensive Income (Loss), Net of Tax | $(25,515) | $(30,057) | $(17,236) | $(130,466) | | Comprehensive Income (Loss) | $(9,310) | $(6,236) | $35,960 | $(58,223) | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in stockholders' equity, including retained earnings, comprehensive loss, and dividends over time **Condensed Consolidated Statements of Stockholders' Equity Highlights (Dollar Amounts in Thousands):** | Metric | Balances, September 30, 2023 | Balances, September 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Total Stockholders' Equity | $693,369 | $644,993 | | Retained Earnings | $461,325 | $415,277 | | Accumulated Other Comprehensive Loss | $(123,434) | $(123,121) | | Cash dividends on common stock (3 months) | $(7,089) | $(7,061) | | Cash dividends on common stock (9 months) | $(21,256) | $(20,708) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports cash inflows and outflows from operating, investing, and financing activities, showing liquidity changes **Condensed Consolidated Statements of Cash Flows Highlights (Dollar Amounts in Thousands):** | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $73,956 | $82,959 | | Net cash used in investing activities | $(55,748) | $(907,622) | | Net cash provided by financing activities | $33,424 | $340,814 | | Net Change in Cash and Cash Equivalents | $51,632 | $(483,849) | | Cash and Cash Equivalents, End of Period | $175,137 | $109,659 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1 - Accounting Policies](index=10&type=section&id=Note%201%20-%20Accounting%20Policies) This note outlines the company's significant accounting policies, including consolidation, earnings per share computation, and recent accounting standard adoptions and revisions. It also details the revision of previously issued financial statements for immaterial errors related to loan interest income and expense classification, which did not impact net income - As of September 30, 2023, Horizon repurchased **803,349 shares** at an average price of **$16.89 per share** under a program authorized for up to **2,250,000 shares**[24](index=24&type=chunk) **Basic and Diluted Earnings Per Share (EPS) (Dollar Amounts in Thousands, Except Per Share Data):** | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Income | $16,205 | $23,821 | $53,196 | $72,243 | | Basic EPS | $0.37 | $0.55 | $1.22 | $1.66 | | Diluted EPS | $0.37 | $0.55 | $1.21 | $1.65 | - The company revised previously issued financial statements for immaterial errors related to the amortization expense of the indirect loan dealer reserve asset and the classification of revolving lines of credit. These revisions resulted in a reduction in interest income on loans receivable and a reduction in non-interest loan expense, but did not impact net income[29](index=29&type=chunk)[30](index=30&type=chunk)[32](index=32&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk) - The company adopted FASB ASU 2022-02 (Troubled Debt Restructurings and Vintage Disclosures) during the first quarter of 2023, which did not have a material impact on the consolidated financial statements[42](index=42&type=chunk) - The company adopted the expedients included in ASU 2020-04 (Reference Rate Reform), extended by ASU 2022-6, in the third quarter of 2023 as it transferred its loans and other financial instruments to another reference rate[45](index=45&type=chunk) [Note 2 – Securities](index=17&type=section&id=Note%202%20%E2%80%93%20Securities) This note provides detailed fair value measurements and amortized costs for available-for-sale and held-to-maturity investment securities, categorized by type and contractual maturity. It highlights significant unrealized losses, which management believes are temporary, and details sales of available-for-sale securities **Investment Securities (Dollar Amounts in Thousands):** | Category | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :----------------- | :------------------ | | **Available for Sale** | Amortized Cost | $1,024,622 | $1,137,702 | | | Fair Value | $865,168 | $997,558 | | **Held to Maturity** | Amortized Cost | $1,966,483 | $2,022,748 | | | Fair Value | $1,556,845 | $1,681,309 | - As of September 30, 2023, and December 31, 2022, the total fair value of securities with market values below their cost basis was **$2.4 billion** and **$2.6 billion**, respectively, representing approximately **99.6%** and **97.0%** of the available-for-sale and held-to-maturity securities portfolio. Management believes these declines are temporary and primarily due to fluctuations in market interest rates[55](index=55&type=chunk) **Sales of Securities Available for Sale (Dollar Amounts in Thousands):** | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------- | :----------------------------- | :----------------------------- | | Proceeds | $88,194 | $— | | Gross gains | $215 | $— | | Gross losses | $(695) | $— | [Note 3 – Loans](index=21&type=section&id=Note%203%20%E2%80%93%20Loans) This note details the composition of the loan portfolio by segment and class, outlines risk characteristics for various loan types, and presents non-performing loans and payment status. It also discusses the adoption of ASU 2022-02, which eliminated Troubled Debt Restructuring (TDR) recognition, and the company's credit quality grading system **Total Loans Outstanding (Dollar Amounts in Thousands):** | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :------------------ | | Total loans | $4,359,002 | $4,157,998 | | Allowance for credit losses | $(49,699) | $(50,464) | | Net loans | $4,309,303 | $4,107,534 | **Non-performing Loans (Dollar Amounts in Thousands):** | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :------------------ | | Non–accrual loans | $19,056 | $17,630 | | Loans Past Due Over 90 Days Still Accruing | $392 | $92 | | Non–performing TDRs | $— | $1,548 | | Total Non–performing Loans | $19,448 | $21,840 | - The company adopted ASU 2022-02 in the first quarter of 2023, which eliminated TDR recognition and measurement guidance. No loans were modified during the first nine months of 2023[78](index=78&type=chunk) - Horizon Bank employs a nine-grade rating system for commercial loans (Excellent, Good, Satisfactory, Satisfactory/Monitored, Management Watch, Special Mention, Substandard, Doubtful, and Loss) and a delinquency-based system for residential real estate and consumer loans[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) [Note 4 – Allowance for Credit and Loan Losses](index=37&type=section&id=Note%204%20%E2%80%93%20Allowance%20for%20Credit%20and%20Loan%20Losses) This note summarizes changes in the Allowance for Credit Losses (ACL) on loans by portfolio segment and describes the methodology used for estimating expected credit losses. The ACL balance decreased slightly, reflecting management's assessment of adequate reserves based on historical loss experience and macroeconomic forecasts **Allowance for Credit Losses (ACL) Summary (Dollar Amounts in Thousands):** | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :------------------ | | Balance, end of period | $49,699 | $50,464 | | ACL/Total Loans | 1.14% | 1.21% | **Credit Loss Expense (Recovery) (Dollar Amounts in Thousands):** | Period | 2023 | 2022 | | :------------------------------------ | :----- | :----- | | Three Months Ended Sep 30 | $520 | $(601) | | Nine Months Ended Sep 30 | $856 | $(1,747) | - The company utilizes the Cumulative Loss Rate method, anchored in historical credit loss experience (January 2008 through the economic cycle), supplemented by external models or data when necessary. The CECL estimate incorporates macroeconomic trends and other environmental factors, with quantitative adjustments to reflect the forecast[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) [Note 5 – Loan Servicing](index=38&type=section&id=Note%205%20%E2%80%93%20Loan%20Servicing) This note details the unpaid principal balances of loans serviced for others, which are off-balance sheet, and provides a summary of changes in mortgage servicing rights, including capitalization and amortization, for the reported periods - The unpaid principal balances of loans serviced for others totaled approximately **$1.486 billion** at September 30, 2023, a decrease from **$1.532 billion** at December 31, 2022[114](index=114&type=chunk) **Mortgage Servicing Rights, Net (Dollar Amounts in Thousands):** | Metric | September 30, 2023 | September 30, 2022 | | :------------------------------------ | :----------------- | :------------------ | | Balance, end of period | $18,650 | $18,704 | | Servicing rights capitalized (9 months) | $863 | $2,942 | | Amortization of servicing rights (9 months) | $(832) | $(2,018) | [Note 6 – Goodwill](index=39&type=section&id=Note%206%20%E2%80%93%20Goodwill) This note states the carrying amount of goodwill and confirms that no impairment charges were recorded for the nine months ended September 30, 2023, following a quantitative assessment - The carrying amount of goodwill was **$155.2 million** as of September 30, 2023, and December 31, 2022[117](index=117&type=chunk) - No goodwill impairment charges were recorded for the nine months ended September 30, 2023, based on a quantitative analysis performed as of August 31, 2023[118](index=118&type=chunk) [Note 7 – Repurchase Agreements](index=39&type=section&id=Note%207%20%E2%80%93%20Repurchase%20Agreements) This note describes the company's repurchase agreements, which are accounted for as secured borrowings, and provides the total borrowings and the fair value of related pledged securities for the reported periods **Repurchase Agreements and Pledged Securities (Dollar Amounts in Thousands):** | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :------------------ | | Total borrowings (repurchase agreements) | $142,494 | $137,871 | | Carrying amount of pledged securities | $154,800 | $160,500 | [Note 8 – Subordinated Notes](index=40&type=section&id=Note%208%20%E2%80%93%20Subordinated%20Notes) This note details the terms of the **$60.0 million** fixed-to-floating rate subordinated notes issued in June 2020, including their maturity date, interest rate structure, and redemption options, which are subject to Federal Reserve approval - Horizon issued **$60.0 million** in aggregate principal amount of **5.625%** fixed-to-floating rate subordinated notes on June 24, 2020, maturing on July 1, 2030[121](index=121&type=chunk) - The notes bear a fixed interest rate of **5.625%** per annum until July 1, 2025, after which they will bear a floating rate equal to Three-Month Term SOFR plus **549 basis points**[121](index=121&type=chunk) - Horizon may redeem the notes, in whole or in part, starting July 1, 2025, at **100%** of the principal amount plus accrued interest, subject to Federal Reserve System approval[122](index=122&type=chunk) [Note 9 – Derivative Financial Instruments](index=41&type=section&id=Note%209%20%E2%80%93%20Derivative%20Financial%20Instruments) This note explains the company's use of derivative instruments for cash flow and fair value hedging, as well as non-hedging derivatives for mortgage banking. It provides tables summarizing the fair value and the impact of these derivatives on the consolidated statements of comprehensive income and income - A **$50.0 million** notional interest rate swap agreement designated as a cash flow hedge was terminated on May 23, 2023, resulting in a **$1.5 million** gain recorded as a reduction of interest expense[124](index=124&type=chunk) - Fair value hedges involve interest rate swap agreements that convert fixed-rate loans to variable rates to mitigate interest rate risk, and these were effective at September 30, 2023[126](index=126&type=chunk) **Fair Value of Derivative Financial Instruments (Dollar Amounts in Thousands):** | Category | Notional Amount (Sep 30, 2023) | Fair Value (Sep 30, 2023) | | :------------------------------------ | :----------------------------- | :------------------------ | | Total Asset Derivatives | $538,867 | $50,811 | | Total Liability Derivatives | $535,046 | $50,543 | **Effect of Derivative Instruments on Comprehensive Income (Loss) (Dollar Amounts in Thousands):** | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Amount of Gain (Loss) Recognized in OCI on Derivative (Interest rate contracts) | $(1,561) | $4,535 | [Note 10 – Disclosures about Fair Value of Assets and Liabilities](index=44&type=section&id=Note%2010%20%E2%80%93%20Disclosures%20about%20Fair%20Value%20of%20Assets%20and%20Liabilities) This note defines the fair value hierarchy (Level 1, 2, 3) and describes the valuation methodologies for assets and liabilities measured at fair value on a recurring basis, such as available-for-sale securities and interest rate swaps. It also covers non-recurring fair value measurements for collateral-dependent loans, which are classified as Level 3 - The fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[133](index=133&type=chunk) - All available-for-sale securities (**$865,168 thousand**) and interest rate swap agreements (**$50,519 thousand** asset, **$(50,519) thousand** liability) are classified as **Level 2** at September 30, 2023[138](index=138&type=chunk) - Collateral-dependent loans, measured at fair value on a non-recurring basis, totaled **$6,616 thousand** at September 30, 2023, and are classified as **Level 3**. Their valuation uses a collateral-based measurement with a weighted average discount of **7.2%** to reflect current market conditions and ultimate collectibility[139](index=139&type=chunk)[141](index=141&type=chunk) [Note 11 – Fair Value of Financial Instruments](index=46&type=section&id=Note%2011%20%E2%80%93%20Fair%20Value%20of%20Financial%20Instruments) This note provides estimated fair values for various financial instruments, both on-balance sheet and off-balance sheet, using specific valuation methods and assumptions. It highlights that these estimates are not necessarily indicative of liquidation or market value for the company as a whole **Estimated Fair Values of Key Financial Instruments (Dollar Amounts in Thousands) at September 30, 2023:** | Instrument | Carrying Amount | Fair Value (Level) | | :------------------------------------ | :---------------- | :----------------- | | Investment securities, held to maturity | $1,966,483 | $1,556,845 (Level 2) | | Loans (excluding loan level hedges), net | $4,309,303 | $4,213,446 (Level 3) | | Interest bearing deposits | $4,573,394 | $4,237,120 (Level 2) | | Borrowings | $1,356,510 | $1,345,114 (Level 2) | | Subordinated notes | $59,007 | $53,401 (Level 2) | [Note 12 – Accumulated Other Comprehensive Income (Loss)](index=49&type=section&id=Note%2012%20%E2%80%93%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note details the components of accumulated other comprehensive income (loss), primarily driven by unrealized gains and losses on available-for-sale securities and derivative instruments, along with their tax effects **Accumulated Other Comprehensive Income (Loss) (Dollar Amounts in Thousands):** | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :------------------ | | Unrealized gain (loss) on securities available for sale | $(159,454) | $(140,144) | | Total accumulated other comprehensive income (loss) | $(123,434) | $(106,198) | [Note 13 – Regulatory Capital](index=49&type=section&id=Note%2013%20%E2%80%93%20Regulatory%20Capital) This note presents Horizon and Horizon Bank's actual and required regulatory capital ratios under Basel III, confirming that both entities met the 'well capitalized' status as of September 30, 2023, and December 31, 2022 - Both Horizon and Horizon Bank met all capital adequacy requirements to be considered **'well capitalized'** as of September 30, 2023, and December 31, 2022[157](index=157&type=chunk) **Consolidated Capital Ratios (September 30, 2023):** | Ratio | Actual Ratio | Required for Capital Adequacy Purposes | | :------------------------------------ | :----------- | :------------------------------------- | | Total capital (to risk–weighted assets) | 14.39% | 8.00% | | Tier 1 capital (to risk–weighted assets) | 13.50% | 6.00% | | Common equity tier 1 capital (to risk–weighted assets) | 11.39% | 4.50% | | Tier 1 capital (to average assets) | 9.87% | 4.00% | **Bank Capital Ratios (September 30, 2023):** | Ratio | Actual Ratio | Required for Capital Adequacy Purposes | Well Capitalized Under Prompt Corrective Action | | :------------------------------------ | :----------- | :------------------------------------- | :-------------------------------------------- | | Total capital (to risk–weighted assets) | 13.11% | 8.00% | 10.00% | | Tier 1 capital (to risk–weighted assets) | 12.22% | 6.00% | 8.00% | | Common equity tier 1 capital (to risk–weighted assets) | 12.22% | 4.50% | 6.50% | | Tier 1 capital (to average assets) | 8.77% | 4.00% | 5.00% | [Note 14 – General Litigation](index=51&type=section&id=Note%2014%20%E2%80%93%20General%20Litigation) This note discloses two class action lawsuits, a Securities Action and Derivative Actions, filed against the company and its officers/directors, alleging false statements and breach of fiduciary duties. Management believes the company has strong defenses and has not recorded any related liabilities as of September 30, 2023 - A putative class action lawsuit ('Securities Action') was filed on April 20, 2023, alleging materially false and misleading statements under the Securities Exchange Act of 1934[161](index=161&type=chunk) - Related derivative actions were filed on August 28 and 31, 2023, alleging breach of fiduciary duties by officers and directors; these actions have been consolidated and stayed[162](index=162&type=chunk) - Management believes the company has strong defenses and intends to vigorously defend against these claims. No liabilities related to these matters were recorded as of September 30, 2023, as they are not probable and not reasonably estimable[163](index=163&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Horizon Bancorp, Inc.'s business, a summary of its financial performance for the three and nine months ended September 30, 2023, and a detailed analysis of its financial condition, results of operations, liquidity, and capital resources. It also discusses critical accounting policies and reconciles non-GAAP financial measures [Forward–Looking Statements](index=52&type=section&id=Forward%E2%80%93Looking%20Statements) This section highlights that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially - The report contains forward-looking statements covered by safe harbor provisions, based on management's expectations, but actual results may differ materially due to various risks and uncertainties[166](index=166&type=chunk) - Key risks include current financial conditions in the banking industry (e.g., recent bank failures, liquidity levels), changes in interest rates, inflation, loss of key personnel, economic conditions, and regulatory changes[167](index=167&type=chunk) [Overview](index=54&type=section&id=Overview) This section provides a general description of Horizon Bancorp, Inc. and its subsidiary, Horizon Bank, highlighting its business as a commercial bank operating in Indiana and Michigan. It also summarizes key financial highlights for the third quarter of 2023, noting a decrease in net income but resilient deposits and well-managed expenses - Horizon Bancorp, Inc. is an Indiana-incorporated bank holding company, operating as a single segment (commercial banking) through its subsidiary, Horizon Bank, across northern/central Indiana and southern/central Michigan[171](index=171&type=chunk)[172](index=172&type=chunk) **Third Quarter 2023 Financial Highlights (Dollar Amounts in Millions, Except Per Share Data):** | Metric | Q3 2023 | Q2 2023 | Q3 2022 | | :------------------------------------ | :------ | :------ | :------ | | Net income | $16.2 | $18.8 | $23.8 | | Diluted EPS | $0.37 | $0.43 | $0.55 | | Loans (period end) | $4,360 | $4,260 | $3,990 | | Deposits (period end) | $5,700 | $5,700 | $5,860 | | Net interest income | $42.1 | $46.2 | $51.9 | | Net interest margin | 2.41% | 2.69% | 3.04% | | Non–interest income | $11.8 | $11.0 | $10.2 | | Non–interest expense | $36.2 | $36.3 | $36.8 | | Non–performing loans to total loans | 0.45% | 0.52% | 0.47% | | Net charge–offs to average loans | 0.02% | 0.01% | 0.00% | | Dividend yield (Sep 30, 2023) | 5.99% | N/A | N/A | [Critical Accounting Policies](index=56&type=section&id=Critical%20Accounting%20Policies) This section discusses key accounting policies that require significant management judgment, including the allowance for credit losses, goodwill and intangible assets, mortgage servicing rights, derivative instruments, and valuation measurements. These policies involve complex estimates and assumptions that can materially impact the company's financial condition and results of operations [Allowance for Credit Losses](index=56&type=section&id=Allowance%20for%20Credit%20Losses) This section details the methodology for estimating the allowance for credit losses, emphasizing management's judgment and economic forecasts - The allowance for credit losses (ACL) represents management's best estimate of current expected credit losses over the life of the loan and lease portfolio, requiring judgment on loan-specific attributes, economic forecasts, prepayment assumptions, and collateral values[177](index=177&type=chunk) - Loan losses are estimated using the fair value of collateral for collateral-dependent loans or when repayment is expected through collateral operation or sale[178](index=178&type=chunk) [Goodwill and Intangible Assets](index=57&type=section&id=Goodwill%20and%20Intangible%20Assets) This section outlines the carrying amounts of goodwill and core deposit intangibles, and the qualitative assessment for goodwill impairment - As of September 30, 2023, Horizon had **$14.5 million** in core deposit intangibles (subject to amortization) and **$155.2 million** in goodwill (not subject to amortization)[180](index=180&type=chunk) - A qualitative assessment for goodwill impairment as of September 30, 2023, concluded it was **'more likely than not'** that the fair value exceeded carrying values, thus no impairment was recognized[181](index=181&type=chunk) [Mortgage Servicing Rights](index=57&type=section&id=Mortgage%20Servicing%20Rights) This section describes the valuation and impairment assessment of mortgage servicing rights, considering market interest rates and prepayment speeds - Mortgage servicing rights (MSRs) are evaluated regularly for impairment by stratifying them based on predominant characteristics (e.g., interest rates, loan terms) and comparing fair value to amortized cost[182](index=182&type=chunk) - Fair value is determined using prices for similar assets or discounted cash flows with market-based assumptions. Falling market interest rates and accelerated prepayments can adversely affect the fair value of MSRs[182](index=182&type=chunk) [Derivative Instruments](index=59&type=section&id=Derivative%20Instruments) This section explains the company's use of derivative instruments for interest rate risk management and their accounting treatment - Horizon uses interest rate floors, caps, or swaps as derivative instruments to reduce sensitivity to interest rate fluctuations as part of its asset/liability management program[186](index=186&type=chunk) - Derivatives are recorded at fair value, with changes reported in the income statement or other comprehensive income (OCI) depending on their designation as fair value or cash flow hedges and their effectiveness[186](index=186&type=chunk) [Valuation Measurements](index=59&type=section&id=Valuation%20Measurements) This section discusses the significant judgment involved in valuing financial instruments, particularly in the absence of active markets - Valuation methodologies for assets like investment securities, residential mortgage loans held for sale, and derivatives involve significant judgment, especially when active markets are absent[188](index=188&type=chunk) - Assumptions related to discount rates, asset returns, and prepayment speeds directly impact the carrying amounts of assets and liabilities, and thus, Horizon's results of operations[188](index=188&type=chunk) [Financial Condition](index=59&type=section&id=Financial%20Condition) Horizon's total assets increased to **$8.0 billion** at September 30, 2023, driven by growth in net loans, while investment securities and deposits decreased, leading to an increase in total borrowings. Stockholders' equity also increased, though book value per common share slightly declined - Total assets increased by approximately **$86.9 million** to **$8.0 billion** at September 30, 2023, compared to December 31, 2022[189](index=189&type=chunk) - Net loans increased by **$201.8 million** to **$4.4 billion** at September 30, 2023, with commercial loans up **$121.8 million**, consumer loans up **$60.7 million**, and residential mortgage loans up **$22.1 million**[191](index=191&type=chunk) - Total deposits decreased by **$157.7 million** to **$5.7 billion** at September 30, 2023, primarily due to reductions in consumer and commercial balances[192](index=192&type=chunk) - Total borrowings increased to **$1.4 billion** at September 30, 2023, from **$1.1 billion** at December 31, 2022, primarily due to the decrease in total deposits[193](index=193&type=chunk) - Stockholders' equity totaled **$693.4 million** at September 30, 2023, an increase from **$677.4 million** at December 31, 2022, primarily due to net income, offset by an increase in accumulated other comprehensive loss[194](index=194&type=chunk) - Book value per common share decreased to **$15.89** at September 30, 2023, from **$16.25** at December 31, 2022[194](index=194&type=chunk) [Results of Operations](index=60&type=section&id=Results%20of%20Operations) This section analyzes Horizon's financial performance, detailing changes in net income, net interest income, credit loss expense, non-interest income, non-interest expense, and income taxes for the three and nine months ended September 30, 2023, compared to the prior year. It highlights a decrease in net income driven by higher interest expenses and credit loss expense, partially offset by non-interest income growth [Overview](index=60&type=section&id=Overview_Results_of_Operations) This section provides a high-level summary of the company's net income and diluted EPS, highlighting key drivers of changes **Consolidated Net Income and Diluted EPS (Dollar Amounts in Thousands, Except Per Share Data):** | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Income | $16,205 | $23,821 | $53,196 | $72,243 | | Diluted Earnings Per Share | $0.37 | $0.55 | $1.21 | $1.65 | - The decrease in net income for the three months ended September 30, 2023, was primarily due to a **$9.8 million** decrease in net interest income and an **$864 thousand** increase in credit loss expense, partially offset by a **$1.6 million** increase in non-interest income and decreases in non-interest expense and income tax expense[196](index=196&type=chunk) - The decrease in net income for the nine months ended September 30, 2023, was primarily due to a **$17.2 million** decrease in net interest income, a **$2.9 million** increase in credit loss expense, and a **$4.3 million** decrease in non-interest income, partially offset by decreases in non-interest expense and income tax expense[197](index=197&type=chunk) [Net Interest Income](index=61&type=section&id=Net%20Interest%20Income) This section analyzes the components of net interest income, including interest income, interest expense, and net interest margin, and their changes due to rate and volume **Net Interest Income and Margin (Dollar Amounts in Thousands):** | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Interest Income | $42,090 | $51,861 | $133,487 | $150,736 | | Net Interest Margin | 2.41% | 3.04% | 2.59% | 3.02% | | Yield on Interest Earning Assets | 4.48% | 3.58% | 4.35% | 3.37% | | Rates Paid on Interest Bearing Liabilities | 2.52% | 0.69% | 2.16% | 0.45% | **Rate/Volume Analysis on Net Interest Income (Dollar Amounts in Thousands) for Nine Months Ended Sep 30, 2023 vs. 2022:** | Metric | Total Change | Due to Volume | Due to Rate | | :---------------------- | :----------- | :------------ | :---------- | | Total Interest Income | $59,945 | $17,818 | $42,127 | | Total Interest Expense | $77,194 | $9,653 | $67,541 | | Net Interest Income | $(17,249) | $8,165 | $(25,414) | [Credit Loss Expense](index=65&type=section&id=Credit%20Loss%20Expense) This section details the credit loss expense, allowance for credit losses, and non-performing loan trends **Credit Loss Expense and ACL (Dollar Amounts in Thousands):** | Metric | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :----------------------------- | | Credit loss expense for loans | $520 | $856 | | ACL balance (period end) | $49,699 | $49,699 | | ACL as % of total loans (period end) | 1.14% | 1.14% | | Non–performing loans (period end) | $19,400 | $19,400 | | Net charge–offs to average loans (Q3 2023) | 0.02% | N/A | - Non-performing loans decreased by **$2.4 million** to **$19.4 million** at September 30, 2023, from **$21.8 million** at December 31, 2022[212](index=212&type=chunk) [Non–interest Income](index=66&type=section&id=Non%E2%80%93interest%20Income) This section analyzes the various sources of non-interest income, including gains on mortgage loan sales, mortgage servicing, and BOLI, and their period-over-period changes **Non–interest Income Summary (Dollar Amounts in Thousands):** | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :------------------------------------ | :------------------------------ | :------------------------------ | :--------- | :--------- | | Total non–interest income | $11,830 | $10,188 | $1,642 | 16.1% | | Other income | $964 | $115 | $849 | 738.3% | | Mortgage servicing net of impairment | $631 | $355 | $276 | 77.7% | | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :------------------------------------ | :----------------------------- | :----------------------------- | :--------- | :--------- | | Total non–interest income | $32,447 | $36,777 | $(4,330) | (11.8)% | | Gain on sale of mortgage loans | $3,372 | $5,969 | $(2,597) | (43.5)% | | Mortgage servicing net of impairment | $1,984 | $4,163 | $(2,179) | (52.3)% | | Increase in cash surrender value of BOLI | $3,051 | $1,843 | $1,208 | 65.5% | [Non–interest Expense](index=67&type=section&id=Non%E2%80%93interest%20Expense) This section details the components of non-interest expense, such as salaries, benefits, and data processing, and their impact on overall expenses **Non–interest Expense Summary (Dollar Amounts in Thousands):** | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :------------------------------------ | :------------------------------ | :------------------------------ | :--------- | :--------- | | Total non–interest expense | $36,168 | $36,816 | $(648) | (1.8)% | | Salaries and employee benefits | $20,058 | $20,613 | $(555) | (2.7)% | | FDIC deposit insurance | $1,300 | $670 | $630 | 94.0% | | Annualized Non–interest Exp. to Avg. Assets | 1.81% | 1.91% | N/A | N/A | | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :------------------------------------ | :----------------------------- | :----------------------------- | :--------- | :--------- | | Total non–interest expense | $106,954 | $107,490 | $(536) | (0.5)% | | Salaries and employee benefits | $58,932 | $60,305 | $(1,373) | (2.3)% | | Data processing | $8,684 | $7,683 | $1,001 | 13.0% | | Annualized Non–interest Exp. to Avg. Assets | 1.82% | 1.99% | N/A | N/A | [Income Taxes](index=68&type=section&id=Income%20Taxes) This section presents the income tax expense for the reported periods and its change from the prior year **Income Tax Expense (Dollar Amounts in Thousands):** | Period | 2023 | 2022 | Change ($) | | :------------------------------------ | :----- | :----- | :--------- | | Three Months Ended Sep 30 | $1,284 | $2,013 | $(729) | | Nine Months Ended Sep 30 | $4,599 | $9,527 | $(4,928) | [Liquidity](index=68&type=section&id=Liquidity) Horizon maintains liquidity primarily through core deposits, supplemented by earnings, loan repayments, investment sales, and significant unused credit lines. The company saw a substantial increase in available credit lines, while unpledged investment securities decreased - Horizon's principal source of liquidity is a stable base of core deposits from long-standing relationships with individuals and local businesses[220](index=220&type=chunk) - At September 30, 2023, the Bank had approximately **$1.65 billion** in unused credit lines with various money center banks, including the FHLB and FRB Discount Window, a significant increase from **$438.0 million** at December 31, 2022[220](index=220&type=chunk) - Unpledged investment securities totaled approximately **$622.9 million** at September 30, 2023, down from **$2.1 billion** at December 31, 2022[220](index=220&type=chunk) [Capital Resources](index=69&type=section&id=Capital%20Resources) Horizon and Horizon Bank continued to exceed regulatory capital ratios for 'well capitalized' banks. Stockholders' equity increased due to net income, despite an increase in accumulated other comprehensive loss. The company also increased its common stock dividends - The capital resources of Horizon and the Bank exceeded regulatory capital ratios for **'well capitalized'** banks at September 30, 2023[221](index=221&type=chunk) - Stockholders' equity totaled **$693.4 million** as of September 30, 2023, up from **$677.4 million** as of December 31, 2022, primarily due to net income, offset by an increase in accumulated other comprehensive loss[221](index=221&type=chunk) - Common stock dividends increased to **$0.48 per share** for the first nine months of 2023, compared to **$0.47 per share** for the same period in 2022, with a dividend payout ratio of **39.3%** (2023) vs. **28.3%** (2022)[222](index=222&type=chunk) [Use of Non–GAAP Financial Measures](index=69&type=section&id=Use%20of%20Non%E2%80%93GAAP%20Financial%20Measures) This section explains Horizon's use of non-GAAP financial measures to provide a clearer understanding of its business and financial results by excluding specific adjustments like acquisition-related purchase accounting and swap termination fees. It includes reconciliations for various non-GAAP metrics - Non-GAAP financial measures are used to provide a greater understanding of Horizon's business and financial results by excluding special circumstances and adjustments such as acquisition-related purchase accounting and swap termination fees[223](index=223&type=chunk) **Adjusted Non-GAAP Financial Metrics (Nine Months Ended September 30):** | Metric | 2023 | 2022 | | :------------------------------------ | :----- | :----- | | Adjusted Net Income (in thousands) | $52,427 | $71,599 | | Adjusted Diluted EPS | $1.20 | $1.64 | | Adjusted Pre–tax, Pre–provision Net Income (in thousands) | $58,007 | $79,379 | | Adjusted Net Interest Margin | 2.53% | 2.96% | | Adjusted Efficiency Ratio | 64.84% | 57.52% | | Adjusted Return on Average Assets (ROAA) | 0.90% | 1.28% | | Adjusted Return on Average Common Equity (ROACE) | 9.92% | 13.85% | | Adjusted Return on Average Tangible Equity (ROATE) | 13.08% | 18.51% | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=73&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section refers to Horizon's 2022 Annual Report on Form 10-K for a detailed analysis of its interest rate sensitivity, stating that no significant changes have occurred since that report - Horizon believes there have been no significant changes in its interest rate sensitivity since it was reported in its 2022 Annual Report on Form 10-K[241](index=241&type=chunk) [Item 4. Controls and Procedures](index=73&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of Horizon's disclosure controls and procedures, concluding they were not effective due to material weaknesses in internal control over financial reporting. It details ongoing remediation efforts, which are not yet fully tested, but affirms the fair presentation of financial statements [Evaluation of Disclosure Controls and Procedures](index=73&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports that disclosure controls and procedures were ineffective due to material weaknesses, despite fair financial statement presentation - Horizon's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were **not effective** as of September 30, 2023[242](index=242&type=chunk) - The ineffectiveness was due to material weaknesses in internal control over financial reporting, as previously disclosed in the 2022 Annual Report on Form 10-K[242](index=242&type=chunk) - Despite the material weaknesses, management concluded that the condensed financial statements for the three and nine months ended September 30, 2023, are **fairly presented** in all material respects in accordance with GAAP[242](index=242&type=chunk) [Description of Material Weaknesses and Management's Remediation Initiatives](index=73&type=section&id=Description%20of%20Material%20Weaknesses%20and%20Management's%20Remediation%20Initiatives) This section details identified material weaknesses in financial reporting controls and outlines management's ongoing remediation efforts - Material weaknesses identified include insufficient controls over the reporting, classification, and disclosure of loans, investments, and individual cash flow line items, as well as a lack of sufficient controls for the timely release of financial statements[243](index=243&type=chunk) - Remediation efforts are in place, including hiring additional accounting and finance resources, providing training, and designing/implementing enhanced controls and procedures[244](index=244&type=chunk) - The material weaknesses will not be considered remediated until the applicable controls have operated for a sufficient period and management has concluded, through testing, that they are operating effectively, with an estimated completion prior to the end of fiscal 2023[244](index=244&type=chunk) [Changes in Internal Control Over Financial Reporting](index=74&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section confirms no material changes to internal control over financial reporting, apart from ongoing remediation activities - There have been no changes in Horizon's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the fiscal quarter ended September 30, 2023, other than the ongoing remediation activities for the identified material weaknesses[245](index=245&type=chunk) [PART II. OTHER INFORMATION](index=75&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, safety disclosures, other information, and exhibits [Item 1. Legal Proceedings](index=75&type=section&id=Item%201.%20Legal%20Proceedings) This section reaffirms the disclosure from Note 14 regarding the Securities Action and Derivative Actions, stating management's belief in strong defenses and that no liabilities have been recorded as of September 30, 2023 - A putative class action lawsuit ('Securities Action') was filed on April 20, 2023, alleging materially false and misleading statements under the Securities Exchange Act of 1934[247](index=247&type=chunk) - Related derivative actions were filed on August 28 and 31, 2023, alleging breach of fiduciary duties by officers and directors; these actions have been consolidated and stayed[248](index=248&type=chunk) - Management believes the company has strong defenses and intends to vigorously defend against these claims. No liabilities related to these matters were recorded as of September 30, 2023, as they are not probable and not reasonably estimable[249](index=249&type=chunk) [Item 1A. Risk Factors](index=75&type=section&id=Item%201A.%20Risk%20Factors) This section supplements previously disclosed risk factors by highlighting recent negative developments in the banking industry, including high-profile bank failures and resulting market volatility, which could erode customer confidence and materially impact the company's operations, liquidity, and stock price - Recent high-profile bank failures (e.g., Silicon Valley Bank, Signature Bank, First Republic Bank) have generated significant market volatility and eroded customer confidence in the banking system[252](index=252&type=chunk) - These developments could materially adversely impact Horizon's liquidity, loan funding capacity, net interest margin, capital, and results of operations, as customers may shift deposits to larger institutions or higher-yielding securities[252](index=252&type=chunk) - Advances in technology can exacerbate liquidity concerns by increasing the speed of deposit movements and the dissemination of rumors through media, including social media[252](index=252&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=75&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - Not Applicable[253](index=253&type=chunk) [Item 3. Defaults Upon Senior Securities](index=76&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities to report - Not Applicable[256](index=256&type=chunk) [Item 4. Mine Safety Disclosures](index=76&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that there are no mine safety disclosures to report - Not Applicable[256](index=256&type=chunk) [Item 5. Other Information](index=76&type=section&id=Item%205.%20Other%20Information) This section reports that no Rule 10b5-1 trading plans were adopted or terminated by the company's directors or executive officers during the three months ended September 30, 2023 - None of the Company's directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the three months ended September 30, 2023[256](index=256&type=chunk) [Item 6. Exhibits](index=76&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the report, including certifications from the CEO and CFO and interactive data files - Exhibits include Certifications of Thomas M. Prame (CEO) and Mark E. Secor (CFO), a Certification pursuant to 18 U.S.C. Section 1350, and Inline Interactive Data Files[257](index=257&type=chunk) [Signatures](index=77&type=section&id=Signatures) This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report on November 9, 2023 - The report was signed by Thomas M. Prame, Chief Executive Officer, and Mark E. Secor, Chief Financial Officer, on November 9, 2023[260](index=260&type=chunk)

E X C E P T I O N A L S E R V I C E • S E N S I B L E A D V I C E ® 29 | --- | --- | --- | --- | --- | --- | --- | |-----------------------------------------------|-------|-----------------------------------------|-------|-------|-------|-------| | December 31, September 30, June 30, March 31, | | 2021 2021 2021 2021 | | | | | | | | | | | | | | | | 0.15% 0.19% 0.22% 0.27% | | | | | | | | 4,543,989 3,831,632 3,680,796 3,524,103 | | | | | | | | | | | | | | | | | | | | | | | | 0.11% 0.14% 0.17% 0.21% | | | | | ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201%2E%20Financial%20Statements%20%28Unaudited%29) This section presents Horizon Bancorp's unaudited consolidated financial statements, detailing key financial positions and performance metrics [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$7,963,353** | **$7,872,518** | | Cash and due from banks | $228,986 | $123,505 | | Investment securities, available for sale | $905,813 | $997,558 | | Investment securities, held to maturity | $1,983,496 | $2,022,748 | | Loans, net | $4,216,284 | $4,107,534 | | Goodwill | $155,211 | $155,211 | | **Total Liabilities** | **$7,254,110** | **$7,195,143** | | Total deposits | $5,709,332 | $5,857,774 | | Borrowings | $1,352,039 | $1,142,949 | | **Total Stockholders' Equity** | **$709,243** | **$677,375** | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $46,160 | $52,044 | $91,397 | $98,875 | | Credit loss expense (recovery) | $680 | $240 | $922 | $(1,146) | | Total non-interest income | $10,997 | $12,434 | $20,617 | $26,589 | | Total non-interest expense | $36,262 | $35,404 | $70,786 | $70,674 | | **Net Income** | **$18,763** | **$24,859** | **$36,991** | **$48,422** | | **Diluted Earnings Per Share** | **$0.43** | **$0.57** | **$0.85** | **$1.11** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) - For the three months ended June 30, 2023, the company reported a **Comprehensive Income of $12.9 million**, consisting of **$18.8 million in Net Income** offset by a **$5.9 million Other Comprehensive Loss**, contrasting with a **Comprehensive Loss of $13.4 million** in 2022 driven by a **$38.3 million Other Comprehensive Loss**[13](index=13&type=chunk) - For the six months ended June 30, 2023, **Comprehensive Income was $45.3 million**, including **$8.3 million in Other Comprehensive Income**, a significant reversal from the **$52.0 million Comprehensive Loss** in 2022, primarily due to a **$100.4 million Other Comprehensive Loss**[13](index=13&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) - Total stockholders' equity increased from **$677.4 million** at the beginning of 2023 to **$709.2 million** as of June 30, 2023, driven by **$37.0 million in net income** and **$8.3 million in other comprehensive income**, partially offset by **$14.2 million in cash dividends paid**[17](index=17&type=chunk) Dividends Per Share | Period | Dividends Per Share | | :--- | :--- | | Three Months Ended June 30, 2023 | $0.16 | | Six Months Ended June 30, 2023 | $0.32 | | Three Months Ended June 30, 2022 | $0.16 | | Six Months Ended June 30, 2022 | $0.31 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $44,114 | $55,449 | | Net cash used in investing activities | $15,609 | $(813,937) | | Net cash provided by financing activities | $45,758 | $273,828 | | **Net Change in Cash and Cash Equivalents** | **$105,481** | **$(484,660)** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company revised previously issued financial statements for the three and six months ended June 30, 2022, to correct immaterial errors related to amortization of indirect loan dealer reserve assets and non-cash security transfers, with no impact on net income[29](index=29&type=chunk)[30](index=30&type=chunk) - As of June 30, 2023, the company repurchased **803,349 shares** at an average price of **$16.89 per share** under its authorized stock repurchase program[24](index=24&type=chunk) - The company adopted ASU 2022-02 in Q1 2023, eliminating Troubled Debt Restructuring (TDR) guidance, which had no material impact on financial statements[37](index=37&type=chunk)[38](index=38&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%202%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and results, focusing on net income, margin compression, and capital adequacy - Net income for Q2 2023 was **$18.8 million** (**$0.43/share**), down from **$24.9 million** (**$0.57/share**) in Q2 2022, primarily due to a **$5.9 million decline in net interest income**[191](index=191&type=chunk) - Net interest margin compressed to **2.69%** in Q2 2023 from **3.13%** in Q2 2022, as the cost of interest-bearing liabilities rose by **176 basis points**, outpacing the **100 basis point increase** in asset yields[196](index=196&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk) - Total deposits remained stable at **$5.71 billion** at the end of Q2 2023, while total borrowings increased to **$1.4 billion** from **$1.1 billion** at year-end 2022 to manage liquidity[188](index=188&type=chunk)[189](index=189&type=chunk) - Asset quality remains sound, with non-performing loans at **0.52% of total loans** and net charge-offs at **0.01% of average loans** for the quarter[166](index=166&type=chunk)[212](index=212&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=72&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section reports no significant changes in the company's interest rate sensitivity since its 2022 Annual Report on Form 10-K - The company reports no significant changes in its interest rate sensitivity since its 2022 Annual Report on Form 10-K[249](index=249&type=chunk) [Item 4. Controls and Procedures](index=73&type=section&id=Item%204%2E%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective due to material weaknesses, with remediation efforts underway - The CEO and CFO concluded that disclosure controls and procedures were **not effective** as of June 30, 2023[250](index=250&type=chunk) - The ineffectiveness stems from material weaknesses in internal control over financial reporting, previously disclosed in the 2022 Form 10-K, regarding loans, investments, cash flow, and reporting timeliness[250](index=250&type=chunk)[251](index=251&type=chunk) - Remediation efforts are in progress, including additional resources and enhanced controls, with estimated completion before the end of fiscal 2023[252](index=252&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=74&type=section&id=Item%201%2E%20Legal%20Proceedings) The company is defending against a putative class action lawsuit alleging materially false and misleading statements, with management believing it is without merit - A putative class action lawsuit was filed against the Company and two officers on April 20, 2023, alleging violations of the Securities Exchange Act of 1934[255](index=255&type=chunk) - The lawsuit claims the company made materially false and misleading statements between March 9, 2022, and March 10, 2023[255](index=255&type=chunk) - Management believes the lawsuit is without merit and has not recorded any liability, concluding a loss is not probable[256](index=256&type=chunk) [Item 1A. Risk Factors](index=74&type=section&id=Item%201A%2E%20Risk%20Factors) This section introduces a new risk factor concerning recent negative developments in the banking industry and their potential impact on the company - A new risk factor addresses the negative impact of recent high-profile bank failures on the banking industry[259](index=259&type=chunk) - These events have eroded customer confidence, caused market volatility, and could adversely affect Horizon's liquidity, funding, net interest margin, and operations due to potential deposit outflows[259](index=259&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales or repurchases of equity securities during the period - The company reports no unregistered sales of equity securities or repurchases of its equity securities for the period[260](index=260&type=chunk) [Item 3. Defaults Upon Senior Securities](index=74&type=section&id=Item%203%2E%20Defaults%20Upon%20Senior%20Securities) This item is reported as not applicable - Not Applicable[260](index=260&type=chunk) [Item 4. Mine Safety Disclosures](index=75&type=section&id=Item%204%2E%20Mine%20Safety%20Disclosures) This item is reported as not applicable - Not Applicable[262](index=262&type=chunk) [Item 5. Other Information](index=75&type=section&id=Item%205%2E%20Other%20Information) The company reports no adoption or termination of Rule 10b5-1 trading plans by directors or executive officers - During Q2 2023, no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or similar arrangements[262](index=262&type=chunk) [Item 6. Exhibits](index=75&type=section&id=Item%206%2E%20Exhibits) This section lists the exhibits filed with the report, including employment agreements, certifications, and interactive data files - Lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and interactive data files[263](index=263&type=chunk)

Horizon Bancorp, Inc. (NASDAQ:HBNC) Q2 2023 Earnings Call Transcript July 27, 2023 8:30 AM ET Company Participants Thomas Prame - Chief Executive Officer and President Mark Secor - Executive Vice President and Chief Financial Officer Lynn Kerber - Executive Vice President and Chief Commercial Banking Officer Conference Call Participants Terry McEvoy - Stephens Damon DelMonte - KBW David Long - Raymond James Brian Martin - Janney Montgomery Nathan Race - Piper Sandler Operator Good morning, everyone, and wel ...

Financial Performance - Net income as reported is $18763 thousand[7], and adjusted net income is $17599 thousand[7] - Diluted EPS as reported is $043[32], and adjusted diluted EPS is $041[32] - The company offers a dividend yield of 62%[1] - Return on average tangible equity is 1394%[32] Loan Portfolio - Gross loans at 6/30/23 totaled $43 billion, with commercial loans comprising 59% ($2506 million), residential mortgages 16% ($675 million), and consumer loans 23% ($1003 million)[3] - Commercial loans constitute 25% of the total portfolio[2] - Non-Owner Occupied CRE represents 51% of total commercial loans, amounting to approximately $13 billion[36] - Owner Occupied CRE accounts for 23% of total commercial loans, totaling around $06 billion[36] Deposit Base - Total deposits at 6/30/23 reached $57 billion[83] - Deposits <$250K, Collateralized and/or Third-Party Insured (eg, IntraFi and Indiana PDIF) account for 79% of total deposits[84] Market Presence - The company operates 76 branches within its franchise[4] - The company has a 553% market share in Michigan City-La Porte, IN, with deposits of $1184 million[4]

Financial Performance - Net income for the first quarter 2023 was $18.2 million, down from $21.2 million in the fourth quarter 2022 and $23.6 million in the first quarter 2022[165]. - Diluted earnings per share (EPS) were $0.42, compared to $0.48 for the fourth quarter 2022 and $0.54 for the first quarter 2022[165]. - Total non-interest income for the first quarter was $9.62 million, down from $10.67 million in the fourth quarter 2022 and $14.15 million in the first quarter 2022[167]. - Consolidated net income for the three-month period ended March 31, 2023, was $18.2 million, or $0.42 diluted earnings per share, down from $23.6 million, or $0.54 diluted earnings per share for the same period in 2022[192]. - The decrease in net income was attributed to a $1.6 million decline in net interest income, a $1.6 million increase in credit loss expense, and a $4.5 million decrease in non-interest income[192]. - Net interest income for the three months ended March 31, 2023, was $45.2 million, a decrease of $1.6 million from $46.8 million in the same period of 2022[194]. - The dividend payout ratio increased to 38.1% in Q1 2023 from 27.8% in Q1 2022, with dividends declared at $0.16 per share[216]. - Pre-tax, pre-provision net income for Q1 2023 was $20.333 million, compared to $23.745 million in Q1 2022[224]. - Adjusted diluted earnings per share for Q1 2023 was $0.43, consistent with Q4 2022[222]. Deposits and Loans - Total deposits at the end of the first quarter 2023 were $5.70 billion, a decrease of $155.8 million from the previous quarter, primarily due to a $122.2 million reduction in municipal and public depositors[165]. - Consumer and commercial deposits totaled $4.28 billion, declining by $33.6 million during the quarter[165]. - The loan-to-deposit ratio was 74.5% at the end of the quarter, with total loans increasing at an annualized rate of 8.3% year-to-date and 2.1% quarter-over-quarter[165]. - As of March 31, 2023, Horizon's total assets increased to $7.9 billion, up approximately $25.5 million from December 31, 2022, primarily driven by a growth in net loans of $89.9 million[184]. - Net loans reached $4.2 billion, with commercial loans increasing by $38.0 million, consumer loans by $58.3 million, and residential mortgage loans by $9.2 million since December 31, 2022[186]. - Total deposits decreased by $155.8 million to $5.7 billion, mainly due to a $122.2 million reduction in municipal and public depositors' balances[188]. - Total borrowings rose to $1.3 billion as of March 31, 2023, from $1.1 billion as of December 31, 2022, primarily due to the decrease in total deposits[190]. Expenses and Efficiency - Non-interest expense for the first quarter was $34.5 million, a decline of 3.3% from the linked quarter and 2.1% from the prior year period[165]. - Total non-interest expense decreased by $746,000 to $34.524 million in Q1 2023 compared to Q1 2022, primarily due to a $1.0 million reduction in salaries and employee benefits[209]. - Salaries and employee benefits expense decreased by 5.2% from $19.735 million in Q1 2022 to $18.712 million in Q1 2023[209]. - The annualized non-interest expense as a percentage of average assets was 1.79% for Q1 2023, down from 1.95% in Q1 2022[210]. - Adjusted efficiency ratio improved to 62.37% for the three months ended March 31, 2023, compared to 60.06% in the previous quarter[231]. Capital and Equity - Stockholders' equity increased to $702.6 million at March 31, 2023, compared to $677.4 million at December 31, 2022, driven by a decrease in accumulated other comprehensive loss and net income generation[191]. - Total stockholders' equity increased to $702,559,000 as of March 31, 2023, up from $677,375,000 at December 31, 2022, representing a growth of 3.5%[229]. - Tangible stockholders' equity rose to $531,012,000, compared to $504,925,000 at December 31, 2022, reflecting an increase of 5.2%[229]. - Book value per common share increased to $16.11, up from $15.55 in the previous quarter, marking a rise of 3.6%[229]. - Average common equity rose to $693,472,000, up from $660,188,000 in the previous quarter, representing a growth of 5.0%[235]. Credit Quality - The allowance for credit losses to total loans was 1.17%, compared to 1.21% at December 31, 2022[167]. - Credit loss expense totaled $242,000 for the three months ended March 31, 2023, compared to a recovery of $1.4 million for the same period in 2022[202]. - The Allowance for Credit Losses (ACL) balance was $49.5 million, or 1.17% of total loans, as of March 31, 2023, down from 1.21% at December 31, 2022[203]. - Non-performing loans decreased by $2.0 million to $19.8 million as of March 31, 2023, compared to $21.8 million at December 31, 2022[204]. Regulatory and Legal Matters - Horizon's disclosure controls and procedures were found to be ineffective as of March 31, 2023, due to material weaknesses in internal control over financial reporting[241]. - Horizon identified material weaknesses in internal control over financial reporting, particularly regarding loans, investments, and cash flow disclosures[242]. - Remediation efforts are ongoing, with an estimated completion date prior to the end of fiscal 2023[243]. - A putative class action lawsuit was filed against Horizon on April 20, 2023, alleging materially false statements and failure to disclose adverse facts[246]. - Management believes the lawsuit is without merit and intends to defend against it vigorously[247]. - Recent high-profile bank failures have negatively impacted customer confidence in regional banks, potentially affecting Horizon's liquidity and results of operations[249].

Horizon Bancorp, Inc. (NASDAQ:HBNC) Q1 2023 Earnings Conference Call April 27, 2023 8:30 AM ET Company Participants Craig Dwight - Chairman and CEO Thomas Prame - President Mark Secor - Executive Vice President and CFO Lynn Kerber - Executive Vice President and Chief Commercial Banking Officer Noe Najera - Executive Vice President and Senior Retail and Mortgage Lending Officer Conference Call Participants Terry McEvoy - Stephens Nathan Race - Piper Sandler Damon DelMonte - KBW David Long - Raymond James Bri ...